Santander Corporate & Investment| Moody’s published on Thursday its monthly report where it announced that there were 16 defaults in May, matching the March figure which represented a monthly record since December 2020. This brings the balance for the first five months of the year to 62 defaults, with North America leading the way (42, more than double the 16 in the same period of 2022), followed by Europe (11), Latin America (7) and Asia-Pacific (2).
By sector, Business Services, Healthcare, Retail, Telecoms and Hotel, Gaming & Leisure are in the lead. Moody’s global HY default rate increased by +0.2pp in May to 3.4%, still below its historical average of 4.1%. However, the agency expects the default rate to rise to 4.6% by the end of this year and to 5% by April 2024 (and then decline to 4.9% in May), given the current context of rising interest rates and slower economic growth, as well as the progressive tightening of financing conditions.
By geography, the European HY default rate stood at 2.7% in May and the US at 3.1%. Moreover, Moody’s expects the European rate to rise over the next 12 months to a level of 3.8%, still significantly lower than the 5.6% in the US. This expected increase in default rates is in line with the current deterioration in credit quality, which is already evident in Moody’s rating drift series, where downgrades outnumber upgrades by 6% in the US and 5% globally. In Europe, however, upgrades still slightly outnumber downgrades by 2%.
